Despite the Greek bailout package agreed last week between eurozone finance ministers, dark clouds looming over the global economy have yet to disappear. The new head of the IMF, Christine Lagarde, has warned leaders in Europe and America that failure to tackle their debt crises will lead to fresh turmoil – and she's not the only one who's worried that we're heading for period at least as tumultuous as the 2008 panic.

That bailout may have won Greece a temporary reprieve, but it's seen as very close to defaulting. What would this mean for the other weakened southern European economies, and ultimately, for the single currency?

UK politicians may be thanking their lucky stars that the country never joined the euro, but we're far from immune to the pain – as the latest anaemic growth figures demonstrate. The worst recession since the second world war is being followed by the slowest recovery. So what are the prospects for Britain's economy as the coalition's austerity measures hit home, and super-low interest rates mean there's little scope to further stimulate the economy?

Across the Atlantic a farcical – and dangerous game is being played out in the US Congress, as the parties remain at loggerheads over raising the debt ceiling, the amount the government is allowed to borrow. Could the US really default? What would the knock-on effects be?

And finally, is there a better way to run the global economy? Are such bodies as the IMF fit for purpose? Can you really fireproof the global economy, or will periods of prosperity always result in a hangover? Join me, and I'll try to answer some of these questions, and any others you might have.

• Larry Elliott will be live online for two hours from 10.30am (UK time) on Wednesday 27 July to answer your questions.

Q&A shortcuts:

Lionel asks:

Larry, I believe that to stimulate what today we call "the economy" is in large measure to exacerbate the disease of consumerism. I believe that such exacerbation, if continued, must sooner or later lead to catastrophe, perhaps ecological as well as economic. Would you comment briefly?

Larry Elliott replies:

It's certainly the case that we need to rethink by progress and success. The industrialisation of the past two and a half centuries has brought great benefits in terms of longevity, health and living standards. The question is whether that model, which relied heavily on fossil fuels, is sustainable at a time when the oil is running out and the global population is heading for 9 billion by 2050. Probably not, in my view.

There are, though, immense problems in getting from where we are to where we want to get to. Developing countries want the level of consumption we enjoy, people in the West have no great desire to consume less, and there is no real mass political movement advocating the sort of changes that would help.

eddyt66 asks:

As a regular reader of your column I get the impression you believe that Greece's debt problems are due to its membership of the Euro ... While I'm on whatever happened to the much trumpeted Anglo-saxon model that was supposed to be superior to the European social democratic model? I haven't heard that mentioned since about 1997.

Larry Elliott replies:

The crisis in the Euro Zone illustrates the innate problems with monetary union. The golden age of European social democracy occurred long before the single currency was created in the late 1990s. Since then, the European economy has grown only very slowly.

Why? Because a one-size fits-all monetary policy only works where certain conditions apply - workers have to be able to move from one part of the monetary union to the other if they lose their jobs; there has to be a system of fiscal transfers so that taxes in one part of the union can finance spending in another part of the union; and the country has to broadly homogeneous in terms of economic development.

None of those applies to the EZ. Language barriers mean little labour market flexibility, the lack of a centralised budget means no real fiscal transfers and there is a great disparity between economic performance in Greece and Germany.

If a struggling country wants to make itself more competitive it can't devalue its currency, so it is faced with the unpalatable choice of deflating or defaulting.Of course, Britain has deep problems, but these would have been exacerbated had the last government joined the Euro in 2003. Indeed, the size of the UK and the importance of sterling would have meant the crisis in the EZ would have been even more serious and come even sooner than it did.

imp3dant asks:

The MPC seem to be balanced between saying the level of demand in the economy is about right, and saying it is too high, with several members saying monetary policy should be tightened now.

Do you think the MPC would tighten monetary policy faster if the government planned a looser fiscal policy - thereby offsetting any attempt to boost demand further (which might put the inflation target at risk)?

Larry replies:

This is an interesting question, which goes to the heart of the debate about the interplay of monetary and fiscal policy. George Osborne's view is that by keeping fiscal policy tight he is helping the Bank of England to keep interest rates low. The chancellor says that helps the rebalancing of the economy by keeping the pound low and thus stimulating exports. If there was any relaxation in the austerity programme, Osborne, argues, any boost to the economy would be countered by the Bank pushing up interest rates.

Personally, I don't think that would happen given the current state of the economy. The recession of 2008 and 2009 was deep and activity is still almost 4% below its peak level. Growth in recent quarters has been weak, so even if the chancellor softened his fiscal plans I don't believe the Bank would push up interest rates. As things stand, my view is that there won't be an increase in interest rates until 2013.

FrancesSmith asks:

i have recently been reading about something called "internal devaluation" which seems to be a euphemism for falling wages to increase competitiveness. but the obvious problem with this is the impact on internal demand. i do not think such a thing can be done without addressing the problems of high living costs, so that wages maintain their real value even if they fall. otherwise what is trying to be acheived is not really "internal devaluation" at all, but just an attempt of offload the economic problems we face onto wage earners. at a time when private debt is already too high.

too often i read articles on economics that seem to be written from an alternative reality viewpoint, has the economics community created a bubble and are unable to get beyond their long winded theoretical papers to see what is commonsense to the rest of us?

and might this be a contributory factor to the problems we currently face?

Larry replies:

Hello Frances, there are two questions here, I think. The first is whether internaal devaluation is the awswer to our problems. The other is whether deflation is always a bad thing. The answer to the first question is no; the answer to the second question is not necessarily, but that it can be very dangerous in certain circumstances.

My view is that the real problem in the UK over the past few decades has been that labour's share of economic output has been in decline as a result of the running down of manufacturing, weaker trade unions, privatisation and globalisation. To maintain or improve their living standards, people have worked longer, taken on second jobs and - most important of all - got themselves deeper into debt. The liberalisation of financial markets has lubricated this process. A more stable and sustainable economy requires higher incomes for labour so that they are less dependent on borrowing and rising house prices. That, though, requires stronger trade unions and tighter regulation.

Deflation is dangerous if people are deeply indebted because the real value of their debt increases when prices fall. In the UK, household debt is around 150% of national income, so a period of deflation would have very severe consequences. But there have been periods, the 19th Century for example, when deflation did not cause systemic problems. Prices in the UK, incidentally, were lower at the outbreak of the 1st World War than they were at the time of Battle of Waterloo

bromley asks:

Larry, If you were appointed Chancellor of the Exchequer and Governor of the Bank of England at midday today what are the first three measures you would take?

Larrry replies:

As Governor of the Bank of England I would re-start the Quantitative Easing programme but with the stipulation that the money created went to fund a Green Investment Bank.

As chancellor of the exchequer I would say that the current state of the economy means that the aim of eliminating the budget deficit over the course of this parliament is too ambitious.

I would also announce a series of measures to boost jobs - a cut in national insurance contributions and work placements for the young unemployed.

heavyrail asks:

Why isn't Obama threatening to increase the money supply without a corresponding increase in debt? He has the constitutional power to do so, it'd be far less damaging than a default, and it's something the Republicans would hate more than raising the debt ceiling.

unherd asks:

I'm interested to know what the markets know that we don't about the possibility (or not) of US default. Obama's first deadline for a deal was last Friday, then it was Monday, and now there's a stand off. And the markets have hardly reacted. What does it take to turn a threat of 'cataclysmic' consequences (White House term) into market reaction? Is it the terror of fuelling a self-fulfilling prophecy?

Larrry replies:

Two good questions here about the row in the US over raising the debt ceiling. Make no mistake, this is a high stakes game of chicken that is being played between the Democrats and the Republicans because there is a risk that the world's biggest economy (and debtor nation) will default. Will that actually happen? I suspect not. My hunch is that the Republicans will blink first, partly because Newt Gingrich came off badly when he shut down the Government briefly in the 1990s and partly because Obama holds all the cards. If you are presiding over the world's biggest reserve currency, it is feasible to turn on the printing presses to finance your debts, for a while at least. There is, of course, a risk that printing money causes inflation to soar, and there will come a point when investors overseas don't want to buy US Treasury bonds. But as a short-term tactic, it would be possible.

dakeane asks:

Hi Larry. Are developed, industrialised, 'rich' nations like the UK living in Lala land?

I mean, national debts of about 100% of GDP (give or take) are never going to be repaid unless we have mega cuts for decades completely dwarfing what we're arguing about now.

With the rise of the BRIC countries and our own economies on the wane things can only get worse. The world has rebalanced and unfortunately we've left ourselves with enormous debts just as it has. Greece is defaulting now, but it's only a matter of time before we all do. Not this year or next but it will happen. The UK, Japan, the US, France, Italy. The lot.

Inevitable?

Larrry replies:

Crikey, I thought I was pessmistic!

I don't think the problem of UK national debt is as serious as you think. Historically, the debt to GDP level has been much higher than it is now. In 1945, the debt to GDP ratio was around 200% due to the cost of six years of armed conflict in which the Government ignored the rising budget deficit. In the three decades after that, growth and a bit of inflation chipped away steadily at the debt to GDP ratio, bringing it down to around 40% of GDP.

Could that happen again? Yes, certainly, provided the UK manages to find a way of growing the economy in a sustained and sustainable way. We have a problem here, but it is a growth and employment problem rather than a deficit and debt problem. The rise of the emerging world is something of a red herring in this respect: increased prosperity in China, India and Brazil should mean bigger markets for UK firms.

Elmorocco asks:

Larry,

For years Gordon Brown was congratulated for his "prudent" running of the economy. But now he's blamed for "the economic mess we're in".

How could perceptions change so dramatically and quickly, following the "financial collapse" (caused mainly by the banks)?

ipse asks:

Hi Larry,

How much longer will it be credible for every coalition politician, when asked about the economy , to keep saying "It's all the fault of the mess left behind by labour ?"

Larry replies:

My guess is that an incoming government has about a year in which it can blame all its problems on the last lot. There was definitely a sense in the second half of 2010 that the public blamed Gordon Brown for the necessity of George Osborne's tough deficit reduction measures, and the Cameron government played its hand adeptly. But after nine months of virtual stagnation, and with real wages falling as a consequence of higher inflation and higher taxes, the argument that it is all down to Brown is now wearing a bit thin.

My view of Brown is that most of the mistakes he made were during his time as chancellor, when he mistook a boom built on excessive private-sector debt for genuine long-term growth. He never did abolish boom and bust. His handling of the crisis was good, however. Policy became more interventionist and, despite the rising deficit, it helped prevent an even bigger catastrophe.

Rememberthegulag asks:

A more stable and sustainable economy requires higher incomes for labour so that they are less dependent on borrowing and rising house prices. That, though, requires stronger trade unions and tighter regulation."

That will do wonders for job creation and competitiveness in the private sector.

How about recognising the fact that in order to increase wealth in an increasingly globalised world (which is something to be welcomed in light of the hundreds of millions of people around the world who have been lifted out of grinding poverty as a result) it is the responsibility of the state to provide our citizens with the education and skills training that they will need to compete (why is our state education system failing so badly in this regard?) and the responsibility of the individual to seize these opportunities?

The prospects for those in western economies who have nothing to offer but their unskilled manual labour is not bright. Education and skills training are of vital importance. Stronger trade unions and greater regulation will only take us back to the economic calamity of the seventies.

Larry replies:

Two responses to that. Firstly, the most successful period for global capitalism was the 30 years between 1945 and 1975 when a rising tide lifted all boats. All sectors of the population benefitted from stronger growth, with those at the bottom doing rather better than those at the top. Why? Because the financial sector was put back in its cage after the Wall Street Crash and the Great Depression, tax policy was redistributive and trade unions ensured that the fruits of growth were shared. The subsequent 30 years saw a widening in income inequality, rising debt, weaker trade unions and increasingly frequent periods of financial instability.

Secondly, the idea that the answer to the challenge of globalisation is a beefing up of eduction sounds very much like New Labour circa 1997. That didn't work out that well, did it?

bernardcrofton asks:

1. I note you ducked my question and the comment by Eddy66 that the euro has steadily gained in value against the pound, even in the depths of the greek crisis.

2. The golden age of European social democracy occurred long before the single currency was created in the late 1990s. Since then, the European economy has grown only very slowly.

It has grown slower than the UK, true, but the eurozone grew almost 10% faster to 2010 than the total growth of all EU countries.

Larry replies:

Sorry, Bernard, I wasn't trying to duck the question, it's simply that there are quite a lot of things to respond to and not much time!

Both the UK and the EZ have very big economic problems. if i was an international investor I would be very wary of both of them. What has happened, I think, is that the action in countries has been in the bond markets, because in a single currency that is where the weakness of individual currencies are exposed. Bond yields in Greece, italy, Spain, Ireland and Portugal have risen because there are doubts about whether they can hack it inside monetary union. if hedge funds could short their currencies they probably would, but that option is not open to them.

Investors can, of course, dump the pound because it is not part of the Euro. On the other hand, bond yields here have remained low. The weaknesses show up in different ways that's all.

I don't think there is much doubt that Germany, France and Italy had superior levels of economic performance when they ran their own monetary policies. in 1970, unemployment in France was 2%, the lowest in the developed world. Germany had strong growth in the 1960s and was one of the most successful countries in coping with the stagflation of the 1970s. My old friend Robert Chote, now head of the Office for Budget Responsibility, once said that the Euro was "a bad idea whose time has come". I couldn't agree more.

liberalcynic asks:

Interesting responses, Larry, but you didn't answer the one about what happened to the supposed 'superiority' of the Anglo-American economic model.

Seems to me that lately the German tortoise looks a better bet than the American hare..What do you think?

paulooo asks:

Hi Larry,

given the liquidity trap which is going on at the moment and low interest rates, isnt it pretty obvious that only keynesian solutions are the best weve got at the moment?and isnt the crisis we have at the moment one of demand so why is this govt trying to use supply side economics to solve demand problems? i read the economic consequences of mr osborne by ann pettifor she is spot on ! why is everbody expecting mr osbornes policies to work when hes pursuing the wrong approach?do u think quantitative easing will work given that capital will move arnd in a globalised economy

Larry replies:

There was an awful lot of loose talk around in the 1990s and 2000s about how the German model was all washed up and could no longer compete with the rougher, tougher Anglo-Saxon economies. I was always suspicious of that, because the German economy has a number of great strengths: it is decentralised (economic and cultural activity is spread across the country), it makes stuff (investment goods) that are in high demand in emerging markets, it has a sane system of finance that serves industry well, and it is based around constantly improving standards. Note, too, that Germany has never relied on a devalued currency to pay its way in the world. Events of the past five years have, I would say, graphically illustrated the weaknesses of the debt-financed Anglo-Saxon model.

Here in the UK, the Government's answer is to implement supply-side changes, such as welfare reforms, more liberal planning laws and deregulation. I don't believe this will work because it ignores the fact that for large parts of the UK economy, especially those furthest away from London, the problem is a deficiency of demand. More generally, as I have said in other posts, the combination of low wage increases and high prices is putting an intense squeeze on consumer spending power.

bearsall asks:

Larry, since you're evidently answering these roughly in chronological order, it looks as if you aren't going to answer mine, posted at 10.41, or Hesitating's a few minutes later, about borrowing.

You believe the government's cutting the deficit too fast. Fine. If you cut it slower, you will have to borrow more from the markets. I asked what effect that would have on gilt rates. That's a question everyone who wants to borrow our way out of recession has to answer. The reality, as you know very well, is that gilt rates would go up. You don't know by how much, and whether that would be catastrophic; and neither do I.

Why don't you leave the waffly macroeconomic questions a minute, and answer the ones which are awkward for your prescription for the economy?

Larry replies:

Sorry, bearsall, I'm doing the best I can to keep up!

Two points. Because the economy is growing more slowly than he anticipated, Osborne is already being forced to revise up his projections for borrowing. Slower growth equals higher borrowing, even though with inflation at its current level it has been noted that tax receipts (which are related to nominal rather than real GDP) should remain relatively robust.

Secondly, if there really was going to be a run on gilts, wouldn't you have expected to have seen it in the month or so leading up to the last general election. The polls then clearly suggested a hung parliament in which it was possible that a minority Labour government with a slower programme of deficit reduction could be returned to power. Yet bond yields remained extremely steady in this period. So, yes, of course, there is a possibility that bond yields could rise if Osborne said he was having a re-think about the pace of deficit reduction. But there is no set rule about how quickly deficits should be reduced and it seems more likely to me that the bond markets will take fright at the UK's sluggish growth rather than to sensible changes in the deficit-reduction plan caused by a change in circumstances. I would rather the Government be a bit more pragmatic, a bit less dogmatic.

IKNOWNOTHING asks:

If you don't mind me asking, what have you done with your money? Gold? Shoebox under the bed?

Larry replies:

I have left this question until last because it made me laugh. On the Guardian we work for love not money!

More seriously, the rise in the gold price to record levels tells us something, because gold has always been seen as the ultimate hedge in times of great uncertainty. And with the Euro in trouble, the politicians in the US bickering and the global recovery running out of steam there is plenty of uncertainty around.

In the UK, I wouldn't be over-invested in the stock market (or gilts for that matter). This is a small island, with tough Green Belt laws and a tax system advantageous to property. House prices are currently depressed but they won't be for ever.

Many thanks for all your questions. I am sorry I couldn't answer more of them but hope you enjoyed it as much as I did.